India Weighs Domestic Carbon Tax to Offset EU Border Levy

A new study suggests India can cushion the economic hit from the European Union’s Carbon Border Adjustment Mechanism (CBAM) by imposing its own carbon tax and retaining the revenue. The CBAM, set to take effect in 2026, will target carbon-intensive imports such as iron and steel, cement, aluminum and fertilizers from countries with weaker climate policies. The iron and steel sector is most exposed, accounting for nearly 90% of India’s CBAM-covered exports. Without a domestic levy, India risks losing tariff revenues to Brussels, with GDP shrinking slightly as a result. High logistics costs and competition from low-priced imports already strain the sector, the study notes. Researchers modeled scenarios showing that a domestic carbon tax could generate revenues of up to 1% of GDP by 2030, enabling green subsidies, industrial support and household compensation. This “revenue recycling” would ease economic pain, support renewable energy growth and limit declines in fossil-fuel-based industries. The report concludes that with the right policies—such as a carbon trading scheme, targeted support for vulnerable sectors, and diversification of exports—India could turn CBAM into a catalyst for its net zero transition. Instead of being a burden, the mechanism could accelerate investment in clean technologies and strengthen India’s position in global trade.